BAD NEWS FOR CHAPTER 13 BANKRUPTCY DEBTORS

On February 4, 2011, the Sixth Circuit Court of Appeals (which governs bankruptcies filed in the Greater Cincinnati and Dayton areas) issued a decision in the case of Baud v. Carroll, 634 F.3d 327 (6th Cir. 2011). Prior to the Baud decision, “above-median” Chapter 13 debtors (please see my previous blog entry) could consolidate their debt into less than sixty monthly payments as long as they were able to pay the minimum amount required according to the “means test.” For most Chapter 13 debtors, this minimum amount is indeed minimal – frequently zero. However, the Baud decision now requires every Chapter 13 debtor who is “above-median” income during the six months prior to bankruptcy to make exactly sixty monthly payments, no more and no less. The rationale behind this decision is to ensure that creditors are paid a fair amount. Unfortunately, this decision will make it more difficult to accommodate emergencies as they arise. For example, if a Chapter 13 debtor misses work due to illness or injury, or incurs unexpected expenses for health care, car repairs, or home repairs, we can typically suspend the monthly Chapter 13 plan payments for up to three months at a time. Before the Baud decision, this was rarely a problem. After the Baud decision, however, it may be necessary to catch those payments up at a later date. This decision will have a particularly negative effect upon those who recently lost overtime income or part-time employment, and may require waiting a few months before filing a bankruptcy. Your bankruptcy attorney should carefully evaluate your income during the past six months, and be able to tell you whether waiting a few months could benefit you. Two of my clients recently were forced to wait several months before we filed their bankruptcy, despite the fact their wages were being garnished. By waiting, however, we shortened their repayment period from sixty months to thirty-six months, and saved a lot more than the amount garnished from their wages. The Baud decision can create a very bizarre and harsh result, and unfortunately we will have to live with it until the United States Supreme Court says otherwise. Rest assured that I will do everything possible to net the best result for you.